Turkey’s Currency-Protected TL Deposits Continue Decline

Turkey’s currency-protected Turkish lira (TL) deposits and participation accounts have continued their downward trend, according to the latest weekly bulletin from the Banking Regulation and Supervision Agency (BDDK).

Data covering the week ending August 22, 2025, showed that the KKM (Kur Korumalı Mevduat) and participation accounts fell from 440.6 billion TL to 427.1 billion TL.

Banking Sector Overview

While deposits declined, other banking metrics showed mixed movements:

• Total loans increased slightly from 20.291 trillion TL to 20.326 trillion TL.

• Overall deposits dropped from 23.903 trillion TL to 23.867 trillion TL.

• Consumer loans rose from 2.447 trillion TL to 2.475 trillion TL.

• Individual credit card balances grew from 2.357 trillion TL to 2.374 trillion TL.

• Non-performing loans (NPLs) increased from 458.6 billion TL to 462.3 billion TL.

This data indicates a continued shift in household and corporate financial behavior, as investors reassess the attractiveness of currency-protected instruments amidst broader economic conditions.

End of KKM Account Openings and Renewals

In a major policy update, the Central Bank of the Republic of Turkey (TCMB) announced that opening and renewal of KKM accounts (except YUVAM accounts) would end as of August 23, 2025.

The central bank clarified that accounts opened before this date will continue to operate until their original maturities expire, after which the related regulations will be officially rescinded.

This decision effectively removes the previous transition and renewal targets for KKM accounts, signaling a shift in policy focus. Additionally, reserve requirement interest rates and commission arrangements tied to these accounts are under review as part of the new framework.

Implications for TL Deposits and the Banking Sector

The KKM program, initially launched to encourage TL-denominated deposits with exchange rate protection, had been a key tool in stabilizing the domestic currency. Its termination marks a significant shift in monetary policy, as the government and central bank pivot away from subsidized instruments toward market-driven deposit growth.

Analysts suggest the decline in KKM balances reflects both:

1. Investor sentiment reacting to changes in interest rates, inflation expectations, and TL volatility.

2. Policy adjustments, including the closure of account openings and renewals, which reduce the inflow of new funds into protected accounts.

Banks are expected to recalibrate their portfolios as deposit inflows from KKM accounts diminish, potentially impacting lending patterns, liquidity management, and profitability.

Broader Economic Context

The contraction in currency-protected deposits comes amid a backdrop of macroeconomic challenges, including moderate inflation, TL volatility, and shifts in foreign investment flows. While consumer loans and credit card balances continue to rise, indicating persistent domestic demand, the drop in TL-protected instruments underscores a rebalancing of household finances.

Policymakers have emphasized that the phase-out of KKM accounts aligns with efforts to:

• Encourage market-driven TL savings

• Reduce reliance on state-backed currency protection mechanisms

• Streamline banking sector regulations and reserve management

Outlook for the Banking and Deposit Markets

Going forward, banks may offer alternative instruments to attract TL deposits, including higher-yield savings accounts, structured products, or participation accounts with competitive terms. Investors will likely monitor the central bank’s interest rate decisions, inflation forecasts, and monetary policy statements closely, as these will shape the attractiveness of TL savings in a post-KKM landscape.

Financial analysts note that while the KKM program helped anchor TL deposits, the market’s adjustment to its termination could lead to temporary fluctuations in liquidity and lending patterns.